How to smooth an arrayed object so the breaks between objects are less obvious?
Using an empty with a scale factor, you will also need to proportionally scale one end of your mesh so it matches the scale factor given to the empty.

You can instead try an array modifier with the fit curve option, and use a bezier curve to drive it. Then use a curve modifier afterwards and control the downscaling with the curve radius by entering Edit Mode in the curve and pressing Alt + S on the tip vertex. 

Don't forget to delete the top faces of your tentacle segment mesh so there are no internal faces.

The downside of this technique is that it will always give some stretching effect caused by the radius not affecting curve length.